The "market basket" for an economy consists of two hot dogs and four hamburgers. In the base year of 2019 (CPI=1.00), the price of a hot dog was $3.00, and the price of a hamburger was $5.00.What is the CPI in 2020 if the prices of hot dogs and hamburgers are $3.25 and $5.25 respectively? Round your answer to two decimal places.
Question
The "market basket" for an economy consists of two hot dogs and four hamburgers. In the base year of 2019 (CPI=1.00), the price of a hot dog was 5.00.What is the CPI in 2020 if the prices of hot dogs and hamburgers are 5.25 respectively? Round your answer to two decimal places.
Solution 1
To calculate the Consumer Price Index (CPI) for 2020, we first need to calculate the cost of the market basket in both 2019 and 2020.
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Calculate the cost of the market basket in the base year (2019): The market basket consists of 2 hot dogs and 4 hamburgers. Given the prices in 2019, the total cost is: (2 hot dogs * 5.00/hamburger) = 20.00 = $26.00
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Calculate the cost of the market basket in 2020: Using the prices in 2020, the total cost is: (2 hot dogs * 5.25/hamburger) = 21.00 = $27.50
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Calculate the CPI for 2020: The CPI is the ratio of the cost of the market basket in the current year to the cost in the base year, multiplied by 100. So, the CPI for 2020 is: (26.00) * 1.00 = 1.0577
Rounding to two decimal places, the CPI in 2020 is 1.06.
Solution 2
To calculate the Consumer Price Index (CPI) for 2020, we first need to calculate the cost of the market basket in both 2019 and 2020.
-
Calculate the cost of the market basket in the base year (2019): The market basket consists of 2 hot dogs and 4 hamburgers. Given the prices in 2019, the total cost is: (2 hot dogs * 5.00/hamburger) = 20.00 = $26.00
-
Calculate the cost of the market basket in 2020: Using the prices in 2020, the total cost is: (2 hot dogs * 5.25/hamburger) = 21.00 = $27.50
-
Calculate the CPI for 2020: The CPI is the ratio of the cost of the market basket in the current year to the cost in the base year, multiplied by 100. So, the CPI for 2020 is: (26.00) * 1.00 = 1.0577
Rounding to two decimal places, the CPI in 2020 is 1.06.
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